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Spain is going through one of the worst political storms in its modern history: it has no fully functioning government, the region of Catalonia is threatening to secede and the Socialist party is at risk of imploding.

No real government

Acting PM Mariano Rajoy has failed to form a government. Photo: AFP

Since elections in December 2015, Spain has been governed by a caretaker executive that cannot take major decisions.

The deadlock began after the parliamentary election in December failed to give any party an absolute majority, as upstart groupings Ciudadanos and Podemos shook up Spain's long-established two-party system.

Efforts to forge a coalition failed as rival parties were unable to overcome their differences.

This prompted a repeat election in June with a similar result, and a similar inability to come to any kind of government deal.

In both cases, the ruling conservative Popular Party won but without an absolute majority, and it failed to win the necessary support to push through a coalition government.

Now the parties are up against an October 31st constitutional deadline, after which the king will have to dissolve parliament and call a third round of elections.

The left in dire straits

Socialist leader Pedro Sanchez is facing an uprising from within the party. Photo: AFP

The Socialist party (PSOE) - the oldest in Spain at 137 years old - is going through such a crisis that some say it is on the verge of "civil war".

He has also laid out the programme for his region's secession from Spain, saying that by the end of June next year, parliament will approve the necessary laws for Catalonia to be able to function as an independent state.

A recovering economy

Photo: AFP

After a devastating crisis sparked in 2008 when the housing bubble burst, economic growth picked up again in 2014.

The economy grew 3.2 percent last year and is expected to increase at the same rate in 2016.

But there are concerns that a protracted political deadlock will hit growth as investors fear instability and public procurement is frozen.

On Thursday Spain's central bank warned that the political impasse in the country could have negative economic effects and that a prolonged period of interim government would delay necessary reforms.

Unemployment is also still sky high. At 20 percent, it is the highest in the European Union after Greece.

And Spain is still battling to reduce its public deficit to below the level of three-percent of GDP set by the European Commission.

The central bank predicts that Spain's budget deficits this year and next would be 4.9 percent and 3.6 percent of annual GDP.